The government's primary foreclosure prevention program – Home Affordable Modification Program (HAMP) – has not lived up to expectations and will wind up helping just a fraction of its target audience, according to a new report from the bipartisan Congressional Oversight Panel (COP).
The COP said that the HAMP may aid up to 800,000 troubled mortgagors at best, far fewer than the 4 million the Treasury Department had hoped to assist.
The report said that potentially 13 million foreclosures are expected by 2012.
It also blames Treasury for keeping poor track of the program, and for outsourcing the responsibility for overseeing servicers to Fannie Mae and Freddie Mac, which "have critical business relationships" with many firms involved in the program.
HAMP's aim is to reduce a borrower's monthly payment to affordable levels while offering incentive payments to lien holders and servicers performing these loan restructurings. But the COP says that although servicers can earn incentive pay from HAMP, they are not required to participate in the program and instead can earn "substantial" profits from foreclosure related fees. (The servicer is not necessarily the lien holder.)
Another problem with the program is that many troubled borrowers also have a second lien, and the holder of these subordinated notes stands to profit from blocking a modification on the first, COP said. "For these reasons among many others, HAMP's straightforward plan to encourage modifications has proven ineffective in practice," the report noted.
The oversight panel wants servicers to be fined for losing paperwork and for failing to perform modifications. It concluded that, "Many of the problems now plaguing HAMP are inherent in design and cannot be resolved at a later date."